Chapter 3-Budget cycle

Generally, the budget process consists of three basic phases :

- Budget development
- Budget monitoring, tracking, and adjustment
- Analysis of final results

Budget development
The budget process should start with a set of activities to laythe ground for the next year’s
budget. Managers of the organization sould start the process by evaluating its financial
position and reviewing the organization’s strategies.

1. Planning step one : committee budget planning

- Analyze most recent fiscal year. The budget planning group in whatever form it takes should
examine the previous year’s financial results in relation to absolute standards and to the
budget that was in effect for that year. However,projections remain uncertain, and the
organization will want to include an assessment of the concrete results for the most recent
completed year.
- Analyze multiple years. Certain kinds of economic factors require multiyear analysis:
a. Factors subject to long term trends. Demand for a service such as education or training
may follow a more or less predictable trend. A single good year could provide the basis
for faulty assumptions about the coming year.
b. Volatile factors. Certain expenses and revenues nclude large, irregular events, such as a
multimillion-dollar gift or large claims in a health care benefits risk pool. For volatile
phenomena, planners need tolook at multiple years of data to determine a base budget
level for planning purposes and to assess strategies to deal with large events.
- Reviewing strategy. In addition to reviewing financial results, the budget planning group will
want to review the organization’s strategy. Many organizations link the budget process to a
formal strategy development process. A typical method is to start the process with a
meeting of the organization’s board or leader in which the organization’s strategy is
reviewed, significant factors about the organization’s operations, markets, environment,
clients, or funders are discussed, and major initiatives are identified.
- Reviewing general parameter. The budget planning process also involves the identification
and setting of major factors driving the budget. These general parameters include :
a. Inflation adjustments for goods, services, wages, and benefits
b. Programmed reductions in funding from major sources, such as an across-the-board
percentage reduction for all state appropriations

Budget variances, trends in major elements of the budget, organizational strategies, and
general parameters allow those planning the budget process to establish the initial
guidelines for the budget, including considerations for increasing or decreasing certain types
of revenue and expense.

2. planning step two : staff budget planning

Once the groundwork has been established, budget development begins in earnest and in
detail. At this point a broader set of staff get involved in the process. In a smaal organization,
many of these steps and the budget groundwork are compressed. The central budget
planners need to communicate to those preparing departmental budgets, who need to
know:

- their budget base

- guidelines for developing proposals, including allowable increases (if any) for categories of
expenses

- deadlines and instructions for submissions

- rationale for guidelines and the organizational financial picture within which the budget
process fits

- the budget base. The budget base provides the starting point for the departmental budget.
The budget might be zero based, meaning that each department is assumed to start with no
funding and then prepares a request and justification for as much funding as is needed.

- instructions and guidelines. The budget base and guidelines must go out with instructions
and deadlines.the staff who prepare departmental budgets need to know what format to
use in returning budget proposal. They need to know what process to follow for requesting
exceptions to the guidelines or for unusual or one-time allocations.

- the personnel budget. Personnel budgets often receive unique handling. Personnel costs
are different than other types of operating expenses in that they must be specified on an
item-by-item basis-that is a salary is assigned to each person who will receive a paycheck.
Each department needs to know its overall personnel budget and how much of this budget
will be allocated to each person.

- preparation of final departmental budget proposals.

- reviewing and approving departmental budgets

3. reviewing and approving the final budget

Once complete, the organization’s budget is submitted to its board or its funding agency for
approval. The board or funding agency frequently sets a deadline for receipt of the
organization’s budget. The organiztion builds its entire budget development process
timeline by working backward from that established due date.

3. loading budgets into the accounting system

as the final step in the budget development process, budgets are loaded into the
accounting system. Most accounting systems include a field for the current year budget
as well as a field that records the cumulative impact of transactions booked to that
account/object code combination. This method allows the accounting system to provide
reports on the percentage of the budget consumed throughout the year, a fundamental
tool for monitoring budget performance.
Budget monitoring, tracking, and adjustments

1. Monitoring results and activity

2. Frequency and timing of reviews
3. Year-end projections
4. Budget adjustments and management responses

Analysis of final results

1. Introduction
2. Reporting results
3. Reporting variances
4. Final analysis

Chapter 4-component of a budget

Most organization have three primary budgets :
1 operating activity
Operating activity is revenue received and expenses incurred in the current
period from which the organization expects to receive the full benefit in the
current period. Operating expenses may include cash and noncash items.
2. capital activity
Capital activity is transactions related to “any project that involves the use of
spending power in return for an anticipated flow of future benefits for a long
period, generally more than one year.”
3. cash flow
cash flow includes all receipts and disbursements of cash during the year. The
net effect of cash flow results in the organization’s ending cash balance.

Part III manajemen anggaran dalam organisasi

Chapter 8
Chapter 9 monitoring budget results
This portion of the cycle may take up the largest part of managers time in
may organizations, much of it consumed by making sure that transactions
have been correctly posted to accounts. However, the key institutional issue
during this phase of the budget cycle is to make sure the organization is on
track financially, identify any need for midstream corrections, and choose a
course of action.
1. developing the institutional assessment
 monitoring the budget during the year must occur on both an
institutional level and at the level of departments, programs or units. On
an institutional level, staff must develop a full picture of the
organization’s financial status, which includes all funds and covers capital
spending and cash flow as well as operating results. Current year financial
analysis needs to assess the organization’s performance so far relative to
expectations, predict results for the year, and identify any longer-term
issues. The organization needs to make sure the resources really are
going to be there before commiting itself to new spending , or assuming
the windfall will cover problems in other area.

2. monitoring capital and cash

on a periodic basis throughout the year, someone in the organization
should monitor the progress of capital projects and spending and the
level of cash balances. In capital projects, the organization needs to know
whether projects will be completed on time, and whether the project
budget is holding up. It is critical that the organization maintain adequate
cash balances to meet its current obligations, both in operating costs such
as payroll and for capital projects. In addition to compiling information on
current cash balances, someone needs to evaluate what new receipts of
cash are expected and determine whether the balance and new receipts
will be sufficient to cover anticipated cash obligations.
3. assessing departments, programs or units
while central staff will analyze the current results on an institutional basis,
departments, programs, and units need to monitor their own budget
status, in more detail and usually more often. Most immediately and
parochially, the budget manager needs to make sure the department is
staying within its budget for the year to protect the department and
herself from criticism, and to guide decisions about purchases or staffing.
Units often will go into more detail on spending and receipts by type. In
smaller units with less budget flexibility, the level of review will be more
detailed to ensure that enough money is available.
4. status meetings
just as the budget development process may be built around a timeline
whose major milestones include meetings between central staff or
leadership and internal managers and meetings in which the budget is
presented to external groups, the process of monitoring the budget may
be structured around a calendar of meetings.
In addition to these internal meetings to review budget status, the
organization’s board is likely to ask for updates throughout the year on
budget status for some of the same purposes: to learn what is going on
 and let them know when corrective action needs to be taken. Internal
meetings can help prepare central administrators to brief the board.
chapter 10 managing the process
chapter 12 controlling costs

chapter 14 budget cuts